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Welcome to The Node! This is Marc Hochstein to take you through the latest crypto news. In today's news: Sam Altman's eye-scanning orbs can now be summoned "like a pizza," say Worldcoin execs; the decentralized lending market is booming again; dogecoin jumps, take a guess why; Elvis is on the blockchain. The Takeaway: Crypto.com is swinging for the fences in its lawsuit against the SEC, writes Aaron Brogan, managing attorney of Brogan Law.👇 |
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Dogecoin Jumps. Take a Guess Why |
Dogecoin (DOGE) jumped late U.S. hours Thursday as Elon Musk further revealed plans for his proposed “Department of Government Efficiency” (get it? D.O.G.E.) at a Pennslyvania town hall. The event encouraged early voting in the crucial state where Republicans and Democrats are in a dead heat. DOGE rose 7% to over 13 cents for the first time since late July, beating the broader market and bitcoin’s 1% rise in the same 24 hours. It extended one-week gains to over 22%, the highest among all major tokens. Midday Friday in New York DOGE was up 14% on a 24-hour basis to 13.99 cents. Musk has emerged as a key backer of Republican Donald Trump’s presidential campaign. His proposed department, would seek to make government spending of taxpayer money more efficient. The expectation among crypto traders is that a Trump victory could lead to more chatter of “DOGE,” fueling retail attention and interest in dogecoin if D.O.G.E becomes a part of the government. |
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I'll Have a Pepperoni Pie and an Eyeball Scan |
Sam Altman's Worldcoin project is chopping its name in half and debuting a faster, simpler "Orb" to scan the irises of billions of people. Now known simply as "World," the project's long-term goal remains the creation of an identity-verification system that lets people "prove their humanity" anonymously online. To get there it has already debuted a fleet of wonky Orbs that scan eyeballs of people who get WLD crypto tokens and a world ID in return. At a media event, anchored by AI-darling Altman and his co-founder Alex Blania, World employees unveiled plans for "Orb 2.0." It will be faster to build with fewer parts, faster to run with better chips, and run on open source code. "We need more orbs, lots more orbs, probably on the order of 1,000 more orbs than we have today," said chief designer Rich Heley. "Not only more orbs, but more orbs in more places." World is opening "premium verification experiences" – essentially storefronts full of orbs – in Buenos Aires and Mexico City. It's also going to stage orbs in more day-to-day places, like a local coffee shop. People will also be able to summon orbs to their home through an app, "much like a pizza," Heley said. |
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'High-Risk' Crypto Loans Surge Again |
The decentralized lending market is booming again, with "high-risk" loans surging to over two-year highs, sparking concerns of liquidation cascades and volatility. The total amount of high-risk loans, defined as those within 5% of their liquidation price, rose to $55 million Wednesday, reaching the highest since June 2022, according to data tracked by analytics firm IntoTheBlock. Crypto traders often draw loans from decentralized lending platforms by locking in collateral in the form of digital assets. The risk here is that if the value of the collateral falls too much, the protocol liquidates the debt by selling off the collateral. A loan within 5% of the liquidation price means if the collateral's price falls by 5%, it will no longer cover the loan, triggering liquidation. Thus, the surge in these risky loans is noteworthy as it can lead to a liquidation cascade. In this self-reinforced process, a series of liquidations happen quickly, lowering crypto prices. That, in turn, causes further liquidations and increased market turbulence. |
Can Pulse Transition Social Media from Web2 to Web3? The growing SocialFi project cultivates an expanding community and bridge to mass adoption. Hard to believe that Web2 was once considered a radical advancement. All it really did was take a technology designed to push information and use it to spread information. The real radical advancement is yet to come, but a new project, the SocialFi startup Pulse, might just be the first pebble of the coming avalanche to drop. Continue reading here. |
Elvis Is on the Blockchain |
Elvis Presley will soon arrive on Bitcoin thanks to a digital art collection of the King of Rock and Roll inscribed on Ordinals. The collection of 1,935 generative images, "Elvis Side $Btc," will be minted by Bitcoin-focused intellectual property (IP) project Royalty in partnership with inscription service OrdinalsBot, and is inspired by the artwork of Joe Petruccio, an artist licensed by the Elvis Presley Estate. The inscriptions will be among the first to mint when OrdinalsBot's marketplace goes live later in the year. The Ordinals protocol allows data to be "inscribed" onto individual satoshis (the smallest unit of BTC at 1/100,000,000 of a full bitcoin), making them unique and therefore able to attain individual value. In this sense, they are the Bitcoin version of non-fungible tokens (NFTs), which brought Ethereum-based digital art to mainstream prominence in 2021. OrdinalsBot, a platform for minting the inscriptions, has emerged as one of the more influential projects in the Bitcoin development sector. It claims to be responsible for 80% of the 10 biggest files inscribed on the Bitcoin network, including the largest ever block, an inscription of the manifesto of privacy-focused tech stack Logos, which cost 3.5 BTC ($235,000). |
The Takeaway: A 'Bet the Company' Lawsuit |
By Aaron Brogan Last week, you probably saw that the cryptocurrency exchange Crypto.com sued the SEC. Maybe you moved on with your day, or read on to see that the company is “seek[ing] declaratory and injunctive relief to prevent the Securities and Exchange Commission ('SEC') from unlawfully expanding its jurisdiction to cover secondary-market sales of certain network tokens.” If you’re like me, you probably didn’t process this as big news. After all, cryptocurrency projects are suing or being sued by the SEC all the time, and none of these have moved the needle. Crypto.com CEO Kris Marszalek said it filed the complaint to “protect the future of crypto” and, with all due respect, that kind of grandiose rhetoric made me think this case was just a posturing exercise. When I dug a little bit, though, this Crypto.com began to look different. When I worked in Big Law, I specialized in what some people call “bet the company” litigation, and what Crypto.com set in motion in Texas last week might be just that. Crypto.com’s complaint revealed it received a Wells notice from the SEC on Aug. 22. A Wells notice is a letter from the SEC telling you you’re about to be sued. After you get one you present evidence that you are in compliance and beg the regulator not to bring the case, but more likely than not, one day soon, you’re getting summoned to court. The SEC apparently accused Crypto.com of “operating as an unregistered broker-dealer and securities clearing agency” based on its business of facilitating secondary market trade in cryptocurrency tokens. This is because the SEC believes those tokens belong to a category of asset it classifies as “crypto asset securities,” over which it asserts authority. Crypto.com could have just waited, but instead it took action. The way it did so suggests to me the company believes this case is existential. First of all, the firm hired Noel Francisco, a former U.S. Solicitor General, to represent it. Former Solicitor Generals like Francisco and Uniswap’s counsel Don Verrilli represented the United States government in the Supreme Court. They are among the very best and most experienced appellate litigators in the country, and, one can safely guess, among the most expensive. You don’t hire Noel Francisco to posture. You hire Noel Francisco to go to war. Around the same time, Crypto.com moved its U.S. headquarters from Florida to Tyler, Texas. This could be totally innocuous and unrelated to the litigation. But the move preceded this action by only five days, and placed Crypto.com squarely in the jurisdiction of the United States District Court for the Eastern District of Texas (E.D.Tex). E.D.Tex., long famed for being the home of patent “forum shopping,"
is well known as one of the most conservative in the country, particularly when it comes to the authority of federal agencies. Even more important than the district court is the appellate circuit it sits in. The Fifth Circuit Court of Appeals is the single most influential court for anti-agency jurisprudence in the country. One recent case out of the circuit, Jarkesy v. SEC, significantly limited the SEC’s authority, and, when affirmed by the Supreme Court, changed the country's judicial landscape. There are many reasons you might want to move your company to Texas, but if you’re in a fight to the death with the SEC, the Fifth Circuit is where you want to have it. Crypto.com’s case is a little fiddly, to be fair. It relies on a judicial maneuver called a “declaratory judgment” that allows courts to “terminate controversies” concerning the “existence or nonexistence of any right, duty, power, liability, privilege, disability, or immunity or of any fact upon which such legal relations depend, or of a status.” These actions can be very difficult to prosecute because of the related doctrines of “justiciability” and “ripeness” through which courts abstain from “entangling themselves in abstract disputes.” Fundamentally, a declaratory judgment asks a court to determine rights in a forward-looking way, before a controversy arises, and courts prefer to wait for the controversy. Consensys just lost a declaratory judgment action in the Northern District of Texas for this reason, and the same could happen here. But if it doesn’t, and the Wells notice Crypto.com received forms a sufficient basis for a declaratory action to proceed, Crypto.com may have perfectly aligned all the dominoes to finally knock down Chair Gensler’s regime. This action cuts across the SEC’s entire authority to regulate the cryptocurrency industry by challenging the bedrock upon which it is all built, the “crypto asset security.” Crypto.com argues that this category is made up out of “whole cloth” and cannot form a cogent basis for an enforcement authority consistent with the Administrative Procedure Act (APA). The company cites case law from New York and D.C. district courts saying much the same, that “it is necessary to distinguish between the digital coins themselves and the offers to sell them” and that secondary market sales of cryptocurrency are not investment contracts. And so, somehow, Crypto.com has reached the precipice. If it wins the first “ripeness” issue and is allowed to bring its case, little stands in its way. Its arguments on the merits are strong, and there are few courts more sympathetic to those arguments than E.D.Tex. From there it would go to the Fifth Circuit, the court the SEC fears the most. And then, just maybe, the Supreme Court, where it would have a sympathetic panel and one of the most experienced appellate attorneys in the country to make its case. I don’t know how this case will turn out, but pay attention. If it wins, Crypto.com could change the game. |
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